Scotiabank doesn’t seem to worry about its variable-rate portfolio

As variable rates are going up (and more rate hikes from the central bank are expected in the nearest future), experts keep an eye on variable-rate mortgages.

Each time the Bank of Canada raises its key lending rate, borrowers with variable mortgages face their monthly payments growth. In case of a 25-year amortization, it’s almost $24 per $100,000 for every 0.50% rate hike.

As you know, the BoC has already raised the overnight rate by 1.25% this year, and 1%-1.50% hikes are expected soon.

However, Scotiabank, the largest mortgage lender that offers variable-rate mortgages, says it’s not worried about its variable-rate portfolio even despite today’s growing-rate conditions.

“We’re not worried about the credit portfolio for the variable-rate mortgage book,” – noted Dan Rees, Group Head, Canadian Banking. “The conversion rate out of variable into fixed has been going up during the previous several months amid higher prices. That’s a tendency we’ve expected.”

“We do believe that a variable mortgage should have a payment that changes. In our opinion, that’s good for customers,” – he noted, adding that the bank has already addressed “tens of thousands” of customers who “may be vulnerable to a change in their monthly payments.”

According to Rees, the average variable-rate mortgage balance at the bank is approximately $400,000, and for every 1% rate increase, monthly expenses would grow by almost $250 “on an expense base of a household of over $5,000.”

“It’s not a significant change,” – he pointed.

Rees says the income level is usually higher for those who choose variable-rate products and many “have been preferring them for a long time as payments are lower.”


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